Q: Is now a good time to invest in Commercial Property?

So why, after five years of advising against commercial property do I believe the commercial property asset is a worthwhile investment?

Firstly, commercial property is now a target for overseas investors and in particular pension funds who are focusing on the inflationary protection that commercial property will offer. Armageddon was expected, and priced into the market, but that has not happened, and no-one now expects it to happen, so with depressed capital values the yield/income has been driven up.

Many rents in the city have upward only rent reviews and this is attracting the large sovereign wealth funds keen to make a yield. Income is everything, especially if it has inflationary protection which commercial property income benefits from.

What has caught the market by surprise is the fact that banks have not had to sell their properties and have retained them. The lack of supply to the market has kept prices buoyant whilst demand has soared. Whilst much of this has occurred in London, it’s a matter of time before it ripples out to other key areas.

From their current oversold position, commercial property is expected to rise by around 15-20% over the next six months.

In the city today there are 30 banks that are now keen to lend. Interestingly most are foreign banks and 13 are German. The overseas investor is buying UK assets at quite a discount because of the currency exchange rate and this is driving up demand for the commercial asset.

Many of the larger REITs such as Helical Bar, London and Stamford have been very buoyant and raised sizeable cash positions which are now looking to take advantage of any weaknesses. Most of these will also have hedged (protected) any threats of interest rate rises on their debts so that threat when higher inflation returns will be excluded.

Savill's announced that city Demand is now at a parallel with January ’08. The general belief is that demand will continue for the next 24 months whilst overseas money continues to pour into London. 85% of all transactions in London are from overseas investors. Sounds favourable. (1)

Source:

(1) JLL EMEA

For investment advice call Matt on 01872 222422, e-mail mhigham@wwfp.net

Matt Higham is an Independent Financial Adviser with Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority.  'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.

The above represents the personal opinions of Matt Higham.

All information is based on our understanding of current tax practices, which are subject to change.
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